AMAG Austria Metall AG (AMAG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the Half Year 2021 Results Presentation. [Operator Instructions] The forecasts, budgets and forward-looking assessments and statements contained in this presentation were complied on the basis of all information available to AMAG as of the present time. In the event that the assumptions underlying these forecasts prove to be incorrect, targets be missed or risks materialize, actual results may diverge from those currently anticipated. We are not obligated to revise this forecast in light of new information or future events. This presentation was prepared and the data contained in it verified with the greatest possible care. Nevertheless, misprints and rounding and transmission errors cannot be ruled out entirely. In particular, AMAG and its representatives do not assume any responsibility for the completeness and correctness of information included in this presentation. This presentation is also available in German. In cases of doubt, the German language version takes precedence. This presentation does not comprise either a recommendation or a solicitation to either purchase or sell securities of AMAG. And I would now like to turn the conference over to Christoph Gabriel, Head of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen, and welcome to our conference call for the first half of 2021 of AMAG Austria Metall AG. Today, Gerald Mayer, CEO of AMAG, will present the development and results over the first 6 months of this year. As usual, after the presentation, you have the opportunity to ask questions during the Q&A session. Gerald, please start your presentation.

Thank you, Christoph. Good morning, ladies and gentlemen, from my side. I'm very happy and proud that I can present to you a very positive first half 2021. It was historically the best we had in AMAG. We had a very good start, and I'm now on the first slide. A very good start into the year after a period of 9, 10 months of short-time work in 2020. So we saw positive demand in all our divisions and also price trends, which are promising. The production was very stable. And in addition to that, which is very important, also the safety performance despite -- or in a very busy environment was really positive with an TRIFR of 0.28. This is outstanding. Revenues, earnings figures are significantly above precrisis level. So after this 10 months, I think, yes, we are back to where we should be. Of course, there's just 1 area, and I will talk about this a little bit later, which is still lagging behind, but as planned. So the revenue increased to roughly EUR 600 million, and main reasons are, of course, volume and price after the prior year number of roughly EUR 460 million. So the record half EBITDA of EUR 94 million after EUR 60 million is the operating result, and the net income after tax with EUR 35 million is also clearly above the levels 2020 and 2019. For the full year 2021, we published last week a new outlook, a new band of EBITDA between EUR 155 million to EUR 175 million, which also means a huge, let's say, upside compared to what we saw last year with roughly EUR 110 million or what we published before. Next slide, and this is the highlight in terms of operations to -- in our view. So you know our strategic pillars. Since, I think, more than a decade, we are talking about our strategy, which refers to innovation and sustainability. So we consistently implement our strategy. I presented, I think, 1 or 2 calls before our new product or successes in our new product firework. And these are examples of how we turn, let's say, our strategy into reality. You see here, and this is what we published throughout the first half, our contracts actually with Audi where we supply, on the one side, ASI Chain of Custody certified material to Audi; on the other side, we get in return chips, means recycling material in the closed-loop concept for our production. So this is how we, let's say, go ahead and how we want to develop our company regarding, let's say, strategy. Slide -- next slide. You see our, let's say, table, the fever curve, as we say, the PMIs of different zones, different countries and split it by month and the development over the last years here month-by-month. And you see that after, I would say, 1 year -- we saw 1 year ago the start of a slow recovery. We saw a real boost, and the recovery speeded up and accelerated enormously in the last quarter. All the colors, in particular, in Europe are dark green, also in the U.S. is dark green. And this also is a very good indicator for our order intake situation and order intake, yes, situation in our downstream business, in particular. So this is a very good indicator for our business. Yes, all positive from this side. Next slide, Slide 7. You see the demand for aluminium, which is also fairly positive. You see the chart to the left shows the primary aluminium demand on a global scale. You see that the expectation is 69 million tonnes after 63 million tonnes in the year 2020 or 65 million in 2019. This is an increase of 9%, and the expectation for the next years is 4% growth per annum. So significant growth here to be expected. On the rolling side, this is the chart to the right, you also see a 9% increase, which is expected for the year 2021, and, let's say, a compound growth rate for the next 5 years of 5% per annum in average, which is also significant growth to be expected. Slide #8. On Slide #8, you see where the growth in rolled products come from and where we expect a significant growth. This comes in particular from the transport sector, means automotive, means also aerospace again. On the other side, we also see other fields which are important for us. And business units means construction, packaging and all the others where we expect growth rates of roughly 4% per annum. And this is, again, an average CAGR until 2025. Slide #9. Aluminium price trends, I would say, this is, of course, you see a sharp recovery here after, let's say, the crisis hit us last year. So we saw an average aluminium price in the first half 2020 of USD 1,622 per tonne. If we compare now the first half 2021, we were on average of -- at the level of $2,250 roughly, means that we are in average $600 above the prior year. In the chart to the right, what you see there is that the increase was even sharper if we concentrate on the second quarter only. So here, we see an upside or an increase of USD 880 per tonne, which is really significantly. For AMAG, this means a very positive development or impact on our Metal Division, and I will talk about this in some slides. Alumina on the next slide, #10. Similar charts are relative for development. Alumina is the most important raw material for our primary production and for our operation. This is in Canada. Alumina price trend is more or less flat. It's slightly up, but more or less flat. And if you compare the previous slide where we saw sharp increases in -- or the price for our end product and a flat development for the most important raw material, this is, of course, also positive for our margins. And in terms of -- if we calculate the cost of Alumina as a percentage of aluminium of our end product, the decrease is from -- let's say, for the first half from 17% last year to roughly 13% this year. So a significant -- relatively a significant impact on our margins. Slide #11. Shipments for the AMAG Group as a whole. We are up 11% roughly. I presented just before the growth rate, we expect for primary aluminium and rolled product of 9%. This is the CRU expectation. We saw here 11% increase for our divisions in AMAG. So I would say more or less in line to what the analysts say. A little bit better here, but more or less there. So it's also reflected in our numbers. The biggest increase -- or we saw increases more or less in all the divisions. A big increase in Metal Division of 6,000 tonnes, but this has also due to this reduction -- or, let's say, a small reduction in inventories compared to last year. We have Casting Division, an increase of 7,800 tonnes. This is more or less reflects the market environment or the demand, in particular, from automotive industry is high. And for Rolling Division, we saw an increase of 9,000 tonnes also as a result of higher demand for our rolled products. But also we see -- and this is what we see shortly, we targeted some mix optimizations, which we did, and this has also an impact on the numbers. Distribution of shipments. This is our split -- product split for the Rolling Division on Slide 12. You see here our biggest -- the biggest, I would say, individual segment is automotive is 17%. We also see tread plates with 15%, which is fairly high. But the biggest increase there was in automotive industry. It's 6% up compared to last year. It means last year, we were at 11%, now we're at 17%. Clad brazing products for coolers, for example, heat exchangers is also up by 3%. But where we are still lagging behind is, of course, aircraft. But this is as planned, and this is the only business unit where we are still, let's say, more in a crisis mode compared to the others. And the stake of aircraft is at 6%. I would say, in future, a normal stake. It should go back to 12%, 13%, 14%, 15%. This is our expectation in the mid-run. High-strength alloys, very important for us. This is a real specialty. And I talked about mix changes. You see that we are down in foil stock. So we shifted from foil stock in particular to automotive and some other segments. And this is on purpose, of course. Yes. This is the development of the split after the year of the crisis. Next slide, Slide #13, shows again the development of the stake of aircraft in particular and how this compares here to automotive. And historically, the highest, let's say, aircraft stake was 15%. Now we're at 6%. And as I told you before, we expect, again, an increase there; not this year, perhaps starting end of the year again step by step up to hopefully above 10% soon. So in automotive, we are right now at 18%. And I would say, a long-term decent number is around 20% for automotive in our portfolio. Slide #14. And this is, for us, really an impressive slide, being now responsible for AMAG -- or has been responsible for AMAG for the last 14 years. We never saw an order backlog development as we saw it this year. We see record levels there. So the order book is really full. We have, let's say, a 6-month lead time right now roughly. So we partly in between closed our order books so that we are not too far in the future because this is always associated also the risk in particular, in times where also cost increases are significant. But this order book development is really an interesting one and reflects the high demand of all the industries, except, of course, aerospace. Slide #15, revenue, sales number. As I mentioned before, EUR 600 million roughly. This is a record level for AMAG for the first half after EUR 460 million in the prior year. Of course, the bulk refers to Rolling Division or all the Metal Division contributes with more than EUR 130 million. The main reason for the increase, and you see the bridge at the bottom of this slide, is volume with EUR 60 million roughly, but also aluminium price with EUR 50 million roughly. And then we have additional positive effects of price and premiums and some others, which contribute to the EUR 600 million, let's say, sales. Slide #16, EBITDA, our operating result before depreciation, interest and taxes. We are at EUR 94 million roughly after EUR 60 million in the year 2020. Of course, 2020 included 1 quarter, which was severely hit by COVID. On the other side, this is -- also, we are now at precrisis level and the historic level we never saw in our company. The main reasons if we go to the bottom of the slide, the bridge, you see that the aluminium price, let's say, contributes by EUR 20 million roughly, prices levels in general and premiums of EUR 15 million. Raw materials, of course, are more expensive, roughly EUR 20 million. Cost increases, which we had to digest. In terms of volume, the contribution is roughly EUR 26 million. And then we have some other impacts of minus EUR 10 million. And Slide #17 show you how the changes, let's say, are allocated to our divisions. The changes in EBITDA between the 2 first halves 2020 and 2021. So you see the sharp increase comes from Metal Division, and this is no surprise. As I explained to you before, volume is positive, the development. Aluminium price is -- was skyrocketing compared to last year, and aluminium price -- alumina prices are roughly flat, just a slight increase there. And this is translates then to a EUR 25 million increase in profitability. Casting also, very positive, is plus EUR 4 million. So this, I would say, also stands out, and it looks also like a very good year for casting. And then Rolling, the development is also positive, of course. And here, we are also touched by cost increases, which -- and issues sometimes regarding shipments, container availability, logistics situation on a global scale. We discuss very open -- very often about energy price increases. Then we know for packaging materials like wood, we see sharp increases. So on the one side, increases, of course; on the other side, with the time lag increases in sales prices and also volume increases translate then all in all into a EUR 7 million increase in profitability for our Rolling Division. Slide #18. This shows you now the overall development for the second quarter 2020. So second quarter really stands out in terms of profitability. But here, of course, we told you when -- during our publication of the first quarter that, in particular, in Metal Division, we had a delay of roughly 10,000, 11,000 tonnes into the second quarter. This is now part of the results in the second quarter. And of course, and part of, if you look to the bottom of this slide, volume mix is EUR 30 million -- has a EUR 30 million positive impact. And of course, this includes this 10,000 -- roughly 10,000, 11,000 tonnes of Metal Division from the first quarter. So there is a shift, let's say, which we also have to consider by analyzing the first or the second quarter as a stand-alone period. All in all, the trend itself is like it was in the first quarter, I would say, fairly positive. Aluminium price contributed EUR 15 million if we compare Q2 to Q2. And of course, the second quarter last year, we had the impact of COVID with a declining aluminium price. Now we are in an increasing, let's say, period, and this has a sharp impact. Raw materials, EUR 15 million of cost burden we had to digest. This is -- yes, and this will continue what we see right now into the next month. But all in all, a very positive second quarter. Net income after taxes. So after tax is EUR 35 million, up EUR 12 million in the comparing period 2020. Also here, of course, the main, let's say, impact comes from EBITDA. And then we have a net financial result, which is minus EUR 2 million, I would say, reasonable. And income taxes, it's just there. Yes, I would say, no surprise there. And so EUR 35 million also quite positive. Slide #20, I would like to skip, let's say, this slide. It summarizes our main key figures of the P&L. Next slide is cash flow. Again, interesting. We had a very positive cash flow in the first half of 2020. Now with EUR 50 million, we are even behind despite the high EBITDA. But what is the reason there, there's no surprise at all. We had to digest, let's say, to build the buildup of working capital in 2021. So there is some negative impact on the cash flows there. On the opposite, last year, it was the other way around. So aluminium prices trended down. So the volume came down. So we got in cash into our books. And this year, it's the other way around. So this is a negative impact, therefore. So all in all, I would say, a reasonable and a positive cash flow, bearing in mind that we have the significant cash flow impacts, let's say, in the first half 2021. Cash flow from investing activities, minus EUR 25 million. For us, more or less as planned. And the outlook for this year is roughly EUR 80 million, so there's more to come. And the free cash flow is positive at EUR 25 million. Slide #22, our key figures, key financials. Net financial debt, cash and cash equivalent, very stable, very solid. I would say this is more for you as information. Slide #23, equity and gearing also very solid. So stability is key in our business. We are long term. And so we always, yes, try to maintain a solid financial position there. This was used to be the policy in AMAG and stays the policy in AMAG also for the next period. A quick look to the 3 divisions. You see the key figures on 24 for Metal Division. I do not want to repeat everything, but it really was definitely the best quarter we saw. But also, -- and we always have to include there that there was extra volume included in the second quarter, which refers to the first quarter production of roughly 11,000 tonnes. In addition to that, we decreased working capital in Alouette. So we also had additional volume there of roughly 2,400 tonnes, which would have shipped actually in the next quarter. So there's 13,000 tonnes roughly influence into the results and volumes there. All in all, we expect, also in the next month, positive development based on the existing market division -- market conditions. Casting Division. EUR 3 million a quarter are really excellent quarters for our Casting Division. And as we mentioned there and explained there on Slide 25, the demand is positive, in particular, from the automotive industry. So the interest is there, demand is there. We also, here and there, have, again, some hits from the availability of chips so that shipments have to be delayed. But all in all, positive environment, and we expect to -- that this is continued. But here, in our downstream operations, this is really for the Casting and Rolling. You have to bear in mind that in the second half, we have less time to produce and to ship because this is maintenance time for us in August and in December. Rolling Division, Slide 26. Also, I would say, positive. We are still not there where we were historically. So there is still need to improve there, but we are optimistic and positive. The demand is there. So volumes are increasing. Prices were, let's say, for a big volume fixed end of last year when the times were really difficult on the one side. And we see also here price increases, which we should see them in the numbers in particular. And at the end -- starting at the end of this year, as I mentioned before, we are roughly 6 -- we have to see a lead time of roughly 6 months, and we see definitely also price increases for our sales prices right now. And on the other side, I mentioned cost increases we are facing, let's say, since day 1 this year. The next slide, dividend and shares. I think I can skip the Slide 28, 29. You saw that we received the Vienna Stock Exchange Award for Mid Cap. We are quite proud on that, in particular, as we celebrate the 10th year at the Vienna Stock Exchange in 2021. The outlook for the year -- for the whole year, Slide 32. Overall, I would say, a very positive environment right now. So we are fairly optimistic also for the rest of the year. We see an attractive price situation for sales prices and costs in our Metal Division. We see promising demands in -- of all the divisions. Here, you, all the analysts are optimistic. Our Canadian operation is running 24/7 at, let's say, interesting market prices, but also stability is very important there. But of course, no one knows. There are always uncertainties there in our -- I would say, if you would ask me, what are the biggest uncertainties? I would say, we never know how tariffs develop and the impact there. We are definitely benefiting from tariffs between Canada and U.S., for example. No one knows how COVID kicks in again. So this is -- this dark cloud is still up there. We always have to be cautious here, and this is what we do. On the other side, we are very optimistic that we can deliver the outlook, we just increased to EUR 155 million to EUR 175 million after our outlook from the first quarter. As the situation market-wise stabilizes and as the order book is really as full as it is, those are the main reasons why increased -- we increased up to EUR 175 million. And this is also somehow, I would say, absolutely reasonable. We are now at EUR 90 million EBITDA. This would mean that we expect EUR 60 million to EUR 80 million for the second half. And I just mentioned before that there's maintenance period for us in the second half, and this is also considered there. So these are -- yes, this is what we wanted to share with you. Of course, we are happy to answer your questions.

[Operator Instructions] And the first question comes from the line of Markus Remis of RBI.

Congrats on the results. First, a couple of questions on the -- sorry, downstream business. Do you have a sense about the inventory levels in your supply chain? So how much would you say is kind of a restocking? And how much is actually directly being processed? And we're hearing from various sectors that customers place orders in order to secure delivery and to avoid higher prices in future [indiscernible] your salespeople also observe?

So regarding the supply chain, of course, we do not have the full insight. But what we see and we think that it is, is that there's real demand there now. And in particular, in auto and in some, I think this is real demand. It's -- when we talk to our, let's say, customers in the distribution business, they also -- they place their orders and not to just to fill their stocks, they also face the actual demand. We also see actual demand increasing in the aircraft business right now. So there is light at the end of the tunnel, at least. And here, of course, the supply chain is still partly full, but it is going down the stock levels, and we're also preparing ourselves to catch up there a little bit. So I would say this is also bad for our optimism now that it's not just, let's say, supply chain, which fills up stock. It's real demand. Now this is at least what our view is.

Okay. It sounds comforting. Then on the decline of the foil stock share, I would have thought that you have kind of a fixed agreement with [ Thai ]. So is the decline just due to the kind of overproportionate growth of the remaining customer industries? Or have you actually lowered the volumes, the production volume of foil stock?

For the year 2021, it was on purpose from our side and from the customer to lower, let's say, the supply of AMAG to [ Thai ]. I expect that it increases again next year a little bit. But all in all, for us, here, we run the plant at -- our plants at full capacity. And for us, it was better to shift it to other products.

Yes, sure. Sure. Okay. Can I then ask on the chip shortage and how it impacts your OEM business? I mean we're getting a lot of news about it's been taken out by the OEMs. Is there a tangible impact in, I don't know, third quarter to be expected because, so far, it seems there's not yet an impact?

Markus, the demand from automotive was really high in the first month and also for the rest of the year. So up to now, we managed quite well that shortages, which came from this side, could be compensated by other, let's say, orders also for the automotive industry. This is perhaps one answer. The second answer is, of course, we are cautiously following that, and we see some reductions of demand here and there. It is still not the big number we have, let's say, or the big hit we got at AMAG because perhaps this is also due to that we mainly -- try mainly to supply the premium cars that we are, let's say, in many programs for electrical vehicle, which are perhaps prioritized, I don't know, with our customers. So for us, up to now, we're in the position to digest it quite easily. For the next month, it is difficult to forecast. The only thing I hear is that no one expects that this issue is solved, let's say, in the next 18 months. So it will take time, and we will have this also, let's say, as issue in the next, let's say, quarters to expect.

Okay. Okay. Is it fair to say that the call off pattern has become a bit more volatile by the OEMs so that you guys also have to be more flexible in your shipments?

Yes, but this is anyhow -- we are used to that, in particular, from automotive. So yes.

Okay. Yes. Okay. Very good. And then 2 questions on the upstream part, please. I mean against the backdrop of this massive increase of LME prices, have you kind of increased your financial hedges for -- in order to kind of secure this favorable levels? And related to that, I mean, we've seen many commodity or metal prices at record levels. But for most of the raw materials, there was a kind of coinciding increase. So what's the take on alumina? Why didn't kind of go up at a similar rate?

First of all, Markus, we expected and still are expecting alumina to increase. And this is also -- this was the reason why we kept also the outlook in our first quarter call where it was because the expectation from our side was that it's not realistic that alumina stays that low. Now we had an additional quarter, and it's still little low. So therefore, we also kept it lower for the outlook now because it seems a little bit it could sustain for the rest of the year. If you ask me a reason, I don't know the reason actually, yes? If you ask and read to readings there, ask, let's say, analysts, they refer to China because it's the easiest answer, I think. And regarding hedges, of course, we did some hedges, but I'm also cautious there because 14, 15 years ago, all of a sudden, alumina price -- aluminium prices increased to more than USD 3,000 per tonne. If you lock in the sales prices in such volatile times and cost increase as a result, then you are in big trouble. So you have to balance out everything. So we have some hedges in place, of course. We did some, and we also did some options and so on. But all in all, we want to participate now, let's say, from this high aluminium price, this is our philosophy. And by locking in, of course, a certain level to be -- to also protect the downside risks. But we are fairly optimistic, and this also has to do with electrification. We know copper is increasing. Also, aluminium can be used in, let's say, transporting, transmissioning of electricity. And so there are many perhaps other reasons, fundamental things behind, which could be, let's say, an argumentation that the price also stays high. And then we are carefully following all the trends there. And therefore, yes, I would say now it is not the time to lock-in everything.

All right. Okay. What about the hedge level, so financial hedges plus natural hedges for this year and maybe next year?

If you -- natural hedges, for us, it is anyhow at the level of roughly 50% of the overall, let's say, volume. So this is -- in particular, let's say, power contract, it's very helpful there. So this reduces a little bit the need to do hedges via derivatives. But there are also, let's say, roughly 30% of derivatives in place. Perhaps half of it is a forward sales, half of it are option type derivatives, which are in place. So there is, of course, a lot of hedges, which we already had and had in the past and did throughout the year.

[Operator Instructions] And the next question is from the line of Michael Marschallinger of Erste Group.

Yes, [Technical Difficulty]

Hello?

I'm sorry, the participant has dropped from the line. [Operator Instructions] Michael, please go ahead with your question.

Hello? Can you hear me now?

Yes.

Perfect. Congrats to the strong results. I have 2 questions left. Maybe first one on the call, also on the aircraft. I just try to understand, yesterday, as Boeing came out with really strong second quarter results, commercial airline deliveries were surging. But in your comments, if I heard you correctly, you said you don't see this colors yet more at the end of the year. Just try to understand this disconnect.

First of all, if you look at the sales and shipment numbers of the aircraft producers, they have a lot of planes, of course, on stock, and they produced throughout the crisis. And I would say this is absolutely realistic that they ship now on quite high level, so I think this is also what we see. But we also -- and this is also, I would say, public -- what, for example, Airbus announced and also Boeing announced with regard to production numbers and the increases we expect there. They are now preparing the whole supply chain to increase the production again and the level of production, which is quite a challenge. And here, we expect, and this is absolutely true, that this starts, this ramp-up begins perhaps this year, but it will definitely go up the next year. So this is what we expect for our aircraft business this year that it is not stronger than last year. It's even a little bit behind. And because last year, we had a very strong first quarter, this is what we are missing this year. So this -- let's say, overall, we expect an increase. It will stay below the level of last year, but this is as expected and no change there. The more -- I'm a little bit more optimistic now. And as I mentioned, I see light at the end of the tunnel because of the news we get and we read from the aircraft producers that they will increase, let's say, the production numbers, the monthly production numbers, in particular for the single-aisle planes. And this is starting this year.

Okay. Understood. And maybe last one. I would like to get your view on the current aluminium prices. I know it's impossible to forecast, but I'd just like to get your view. If you see this, this rally in aluminium, which we see since autumn last year, is this in your view more driven by COVID-related disruptions and prices may have peaked now in May? Or do you see the other forces simply might even be a super cycle for metals due to the secular growth in green economy, carbon neutrality, this move to EVs and that prices might even head higher from here?

First of all, I would say the -- forecasting aluminium price is really difficult. It is a crystal ball. Why is it a crystal ball? And we saw so many times where all the analysts told us prices will increase, prices will go down, and the opposite happened. What we see right now, and this is definitely true, is strong demand. And strong demand in primary, strong demand for rolled products. And this, of course, backs also a higher aluminium price. And my take there is that it will stay at a good level for us in the next month. If this is true or not, future will tell because there is never a guarantee. One thing is also clear in aluminium, it is a highly liquid metal at the financial markets, and this sometimes contributes a lot to development. So if prices are trending up, this is something which boosts this trend again. And also when prices are going down, it pushes further down. This is what I saw in the last 10, 15 years. And yes, and we are happy that the level is where it is right now, and we enjoy each and every day. And I would say there are also good reason that it stays where it is or perhaps even goes a little bit further.

[Operator Instructions] And we have a follow-up question from Markus Remis.

Just a quick one on the volume or shipment outlook in Rolling. Is there any kind of guidance you can give us how much you think you will ship in the current year?

We were at 115,000 tonnes for the first half. We are lagging behind a little bit. So production was a little bit higher than shipments in the first half. For the second half, production will be a little bit lower than shipments, but we should catch up in shipments. So I would say it is fair to assume that we are roughly, perhaps, yes, roughly at the level where we were in the first half.

And there are no more questions at this time. I would like to hand back to Christoph Gabriel for closing comments.

Many thanks for joining this call. And as always, if you have any questions, please feel free to give me a call. I'm always there for you. Thank you, and stay healthy.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.